Lumber Liquidators Holdings, Inc. has agreed to pay a total penalty of $33 million for filing a materially false and misleading statement to investors regarding the sale of its laminate flooring from China to its customers in the United States.
“This resolution holds Lumber Liquidators accountable for misleading the investing public,” said G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia. “It also recognizes that the company has cooperated with the government's investigation, completely replaced its senior executive team, and installed experienced executives who have displayed a commitment to building an ethical corporate culture. We will continue to ensure that market participants can trust information communicated by public companies when making investment decisions. My thanks to our prosecutorial team and our investigative partners for their outstanding work on this case.”
Lumber Liquidators, a public corporation headquartered in Toano and one of the largest retailers of flooring products in the United States, entered into a deferred prosecution agreement (DPA) in connection with a criminal information filed today charging the company with securities fraud.
The case was primarily focused on the fact that Lumber Liquidators knowingly filed a false and misleading statement to investors broadly denying the allegations featured in a March 2015 episode of 60 Minutes, and affirming that the company complied with California Air Resources Board (CARB) regulations.
“Lumber Liquidators lied to investors and to the public about its compliance with formaldehyde regulations for the flooring it sold – all to protect its stock price,” said Brian A. Benczkowski, Assistant Attorney General of the Justice Department’s Criminal Division. “False and misleading financial reports undermine the integrity of our securities markets and harm investors. The Department and our law enforcement partners are committed to doing everything we can to ensure that those who commit securities fraud are held accountable.”
According to court documents filed as part of the DPA, Lumber Liquidators was subject to various laws that regulated the chemicals used in wood products, including laminate flooring.
Specifically, CARB enforced limits on formaldehyde emissions from composite wood products. In September 2013, CARB announced that it intended to use deconstructive testing to determine whether finished flooring products contained CARB compliant cores.
In 2013 and 2014, CARB informed Lumber Liquidators that flooring samples collected from its California stores failed deconstructive testing for formaldehyde emissions. Lumber Liquidators own deconstructive tests of the same products yielded similar results.
“This penalty should serve as a warning to other corporations who seek to mislead investors,” said David W. Archey, Special Agent in Charge of the FBI’s Richmond Field Office. “FBI Richmond is grateful for the commitment to this case of its partners at the U.S. Attorney’s Office, the Justice Department’s Fraud Section, IRS Criminal Investigations and the U.S. Postal Inspection Service.”
